Pensions  

Budget round-up: pensions

It may well be that once the dust has settled, what many people actually do at the point they decide to convert their pensions savings into income might not be very different than now, but the announcement came out of the blue.

Obviously more people will take lump sums, and the news that a quarter of this will continue to be tax free is welcome. However, many older people might appreciate the security of a guaranteed income, and perhaps when annuities become an option, rather than a default, a more considered view of the pluses and minuses of the product could be made.

It will be incumbent on annuity providers though to create products that clearly add value to their customers and the days of some providers being able to offer poor value annuities are over.

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So what about those people now approaching retirement, with some of the changes announced impacting retirements from 27 March?

If you have either a pot between £2,000 and £10,000 or had total benefits in excess of £18,000 but less than £30,000 and you wanted to take a lump sum, or had guaranteed income over £12,000 but less than £20,000 and you wanted to take flexible drawdown – it might be best to wait for a week or so.

Remember though that these are significant changes and some pension schemes might take a bit longer to catch up with them.

The bigger question is what the longer-term changes, scheduled to take effect from April 2015, will mean. The chancellor has indicated a split between the rules impacting defined contribution and defined benefit schemes.

He is mindful that many public sector schemes are unfunded and allowing transfers to the probably more liberal defined contribution sector rules could have wider implications, so restrictions on transfers between DB and DC are likely.

But what this really will mean, particularly for those perhaps with larger pension pots, is impossible to judge yet. Getting clear advice on retirement in the new regime, although eventually easier, might be very difficult to obtain in the next few months.

The chancellor has indicated that he wants the new regime to be fairer from a tax perspective, but that does not mean that everyone will be better off if they delay retirement.